When you hear the word “flip,” do you think of old-fashioned barbeque sauce, beef jerky, or demolition? Unfortunately, flipping houses has come to mean only a third of those things.
A real estate flip is when someone buys a home, makes superficial changes, and sells it for a profit. But there’s another kind of flipping: you turn a profit by investing in an undervalued business and putting your skills and resources to work to improve it. It may seem unusual to do with your money – after all, isn’t your objective generally to grow your wealth?
But if you find the right opportunity at the right price point and have what it takes to make it profitable, buying and flipping can be an excellent investment. Here’s how and some cautions about why not every business is right for flipping.
What flipping isn’t
Flipping isn’t a get-rich-quick scheme. For starters, it takes time to find the right opportunity. Depending on what you’re looking at, that could be days, weeks, or even months. Then it would help if you did the legwork to assess the business’s current state and understand whether it’s worth investing in and how much you should pay.
That will take more time and likely involve some investment in getting the business up and running. Finally, you’ll need to manage the transition – which could be even more work, depending on what you’ve bought into.
Why flip a business?
Flipping a business has a different set of goals than flipping a home. The first, of course, is to make a profit. Second, you’ll want to make sure that the business you’re flipping is worth more than what you paid for it; if you don’t manage that well, you can lose money on the deal. Third, and just as importantly, you’ll want to ensure the business is sustainable for the future owner(s).
For these reasons, flipping a business is different from buying a startup. While startups have challenges, the goal is generally to grow your wealth, not to ensure that the company is viable in the future. If you’re looking to make a quick buck, buy a franchise, or find a quick and easy investment, you’ll probably want to skip this section and keep looking.
3 Steps to Flip a Business
These are the 3 steps to flipping a business:
Identify the right opportunity: This is where you get creative and use your skills, network, and resources to find opportunities others have missed.
Assess the current state: This is where you do the legwork to ensure the business is worth your investment and that you know what you’re getting into.
Determine your investment strategy: This is where you use your knowledge of the industry and the marketplace to determine how much you should pay for the business and what your exit strategy should be.
Identifying the right opportunity
You can’t just flip any business. You have to find the right opportunity with the right price, market, and fit with your skills and resources.
There are a few ways to do this:
Find an option in your network: Start by looking in your network. Who do you know who might know someone who’s selling a business? Or who might know of an opportunity that fits your interests and skill set? This is one of the best ways to find opportunities that might otherwise go unnoticed.
Next, look for opportunities in your community: Are there undervalued businesses in your area that you’d be able to help? Are there events that might bring commerce to your city or town that you could help bring to fruition? Are there resources or products that aren’t available or that need to be brought to the area? These are all ways to find opportunities in your community.
Keep an eye on industry news: What are the current trends in your industry? What are people talking about? What are they struggling with? What do they need? What can you provide?
Use your favorite search engine: Google is your best friend. If you’re interested in flipping a particular type of business, use Google to find opportunities in your area.
Assessing the current state
Once you’ve found an opportunity that you think is worth your time, it’s time to assess the current state of the business. How well is it doing? How much revenue is it generating? How much profit is it making? How much cash is it bringing in? What are its biggest challenges? What’s its biggest opportunity?
Depending on the business you’re looking at, you may have access to some of this information or have to do some digging and get creative. Early in this process, you may decide that the business isn’t worth your investment. That’s normal – and you’ll want to ensure you don’t waste too much time on a bad investment. What’s important is knowing how to tell if a business is worth your while before investing in it.
Determine your investment strategy
Now that you know what you’re getting into, it’s time to determine your investment strategy.
How much are you going to pay for the business? How are you going to finance your investment? What are your exit strategies? What’s your timeline for getting the company up and running? Will you partner with someone or hire a manager? You may decide that the business is worth investing in, but you should also consider the resale value. What do comparable businesses sell for? How long is the typical business in this industry expected to survive?
Are there similar businesses that are more profitable or are more likely to last? These are all things you should take into consideration before investing.
Going live and helping with the transition
Once you’ve identified the right opportunity, found the right business, and determined your investment strategy, it’s time to go live and help with the transition. What does that look like? It depends on the business you’ve bought into and on your deal with the owner. In some cases, you’ll be able to take the business over right away with an existing client base. In others, you’ll want to help the current owner finish out their contract.
While helping with the transition, you’ll need to keep an eye on your exit strategy. How much time do you have to get the business up and running? When should you exit the business? What are your expectations for the company, and how long will it take to meet them? These are all questions you’ll need to clarify as you transition into the new business.
Flipping a business can be a great way to bring in a steady income and use your skills and resources to help others succeed. But it takes work to find the right opportunity, and ensuring it’s worth your time and money takes work. However, when you find the right opportunity at the right price, flipping a business can be highly lucrative and a great way to positively impact your community.